New Income-tax Act, 2025 – A Complete Guide for Common Taxpayers

1. Introduction – Why a New Income-tax Act?

India is replacing the old Income-tax Act, 1961 with the Income-tax Act, 2025 from 1st April 2026.

This change is not about increasing taxes, but about making the law:

• Simpler
• Easier to understand
• More structured
• Less dependent on expert interpretation

Over time, the 1961 Act became complex due to numerous amendments. The new Act reorganizes and simplifies the same provisions for better clarity and compliance.

2. Key Objectives of the New Act

The new law aims to:

• Use simple and clear language
• Reduce legal complexity and disputes
• Consolidate scattered provisions
• Improve ease of doing business
• Make compliance taxpayer-friendly

Important: There is no new tax and no increase in tax burden.

3. Major Structural Changes

Key Improvements:

• Provisos and explanations merged into main sections
• Use of tables and formulas
• Removal of redundant provisions
• Better logical arrangement

4. Concept Shift – “Tax Year” Replaces “Assessment Year”

Old System

• Previous Year (income earned)
• Assessment Year (taxed next year)

New System

• Only Tax Year

Meaning of Tax Year

• A 12-month period within the financial year
• Income of Tax Year is taxed after its end (same as earlier system)

Why this change?

To remove confusion caused by two different terms.

5. Continuity of Old Law – Nothing is Lost

Even though the old Act is repealed:

• Past assessments remain valid
• Pending cases continue under old law
• Existing rights (refunds, losses, credits) remain intact

Example:

If your assessment for AY 2023-24 is completed, it remains valid even after 2026.

6. Transition Framework (Very Important)

Both laws will run together for some time.

Practically:

• Old Act → Applies to income before 1 April 2026
• New Act → Applies to income after 1 April 2026

Key Principle: Law applicable depends on year of income, not date of compliance.

7. Tax Payments – No Major Changes

Modes remain same:

• TDS/TCS
• Advance Tax
• Self-Assessment Tax

TDS Simplification

• Earlier: Sections 192–194T
• Now:
  • Section 392 → Salary
  • Section 393 → Other payments

TDS Transition Rule

Interest on TDS Default (No Change)

• Non-deduction: 1% per month
• Non-deposit: 1.5% per month

8. Advance Tax – Same System Continues

Installments remain unchanged:

Key Change: Only terminology shifts from Assessment Year → Tax Year

9. Income Tax Return (ITR) Filing

Important Clarification: You do NOT file two returns for same income.

Filing during transition:

Due Dates (Same as before)

Types of Returns under New Act

• Original Return
• Belated Return → within 9 months
• Revised Return → within 12 months
• Updated Return → within 48 months

10. Loss Carry Forward – No Disruption

• Losses under old Act continue under new Act
• No reset of time limits

Example:

Loss from AY 2026-27 can be used in Tax Year 2026-27 onwards.

11. Refunds, Credits & Old Dues

Refunds:

• Old refunds remain claimable

MAT/AMT Credit:

• Can be carried forward for 15 years

Tax Dues:

• Old tax demands are still payable
• Recovery continues under new Act

12. Reassessment, Appeals & Proceedings

• All pending proceedings continue under old Act
• New notices for old years also follow old law

13. Digital & Administrative Continuity

The following continue unchanged:

• PAN & TAN
• Faceless assessment
• E-filing portal
• Government schemes

14. Impact on NGO / Charitable Trusts

The new Act ensures continuity for NGOs and charitable organizations:

• Registrations and approvals under old Act remain valid
• They are treated as granted under new Act unless inconsistent

A new section 354A has been inserted into ITA 2025 to specify that the merger of a registered NPO with another registered NPO having the same or similar objects will not attract tax on accreted income, following the provisions of section 12AC of the ITA 1961.

Commercial activity by an NPO engaged in the advancement of any other object of general public utility has been removed from the category of “specified violation” under section 351 of ITA 2025, thus preventing the cancellation of registration on this ground.

Section 332(1)(f) of ITA 2025 has been amended to limit the reference solely to Schedule VII [Sl. Nos. 17 to 19], removing earlier listed funds (Sl. Nos. 10 to 16) from the registration requirement for claiming exemption.

Section 349 of ITA 2025 has been amended to permit registered NPOs to file a belated return and still claim exemption, by including a reference to section 263(4), in line with the ITA 1961.

Practical Impact:

• No need for immediate re-registration
• Existing tax exemptions continue
• Compliance structure remains stable

However, NGOs must ensure that their activities align with provisions of the new Act to avoid conflicts.

15. Audit Provisions under the New Income-tax Act, 2025

The Income-tax Act, 2025 introduces significant structural simplification in audit reporting while retaining the underlying compliance framework. For businesses and professionals, the earlier audit reports in Forms 3CA, 3CB and 3CD under the old Act have now been consolidated into a single unified Form No. 26, to be furnished under Section 63 of the new Act. This form applies from Tax Year 2026-27 onwards and continues to cover cases where turnover exceeds Rs. 1 crore (Rs.10 crore in specified low-cash cases) or professional receipts exceed Rs. 50 lakh. The new format is more structured, technology-driven and based on Yes/No responses with trigger-based schedules, which reduces unnecessary disclosures and improves consistency between audit report and return of income.

Similarly, for NGOs and charitable organisations, the earlier audit reports in Form 10B and Form 10BB have been replaced by Form No. 112 under Section 348 of the new Act. This form is mandatory for registered non-profit organisations whose income exceeds the basic exemption limit and must be filed one month prior to the due date of return filing. Importantly, filing of Form 112 is a pre-condition for claiming tax exemptions, thereby ensuring stricter compliance.

Overall, these changes aim to standardize reporting, reduce ambiguity, enable automated assessment, and lower future litigation, while keeping the audit requirement itself largely unchanged in substance.

16. Key Takeaways

• No new taxes introduced
• Law is simplified, not changed in substance
• “Tax Year” replaces “Assessment Year”
• Old and new laws will run together during transition
• Rights and liabilities remain protected
• Compliance procedures largely unchanged

Conclusion

The Income-tax Act, 2025 is a reform in presentation, not taxation.

It aims to make tax laws:

• Easier to read
• Easier to comply
• More transparent

For common taxpayers, this means less confusion and smoother compliance, while professionals benefit from reduced litigation and better clarity.

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 The author can be reached at SAMAKSH.SGC@GMAIL.COM and can be called at +91-9873368144.